Megaprojects new means of capital formation, fund flight

Foreign-funded megaprojects emerge as a new tool for capital formation and its flight overseas, a policy think-tank Thursday presented such a view in the context of Bangladesh's external debt buildup.

Noted economists at a dialogue arranged by the Centre for Policy Dialogue also questioned why foreign direct investment (FDI) in the country stagnated while foreign borrowing is ballooning with debt-servicing liabilities mounting nearly up to the nation's bearing capacity.

"Once there were two illegal ways of capital formation in Bangladesh. First-no repayment against borrowings from banks, and then gambling on the capital market. Nowadays, the foreign- funded projects have become another way for the capital gain," CPD distinguished fellow Dr Debapriya Bhattacharya told the meet where entire spectrum of the economy and finance came up for a review.

Citing some power-sector projects as an example, he alleged those involved with the implementation had siphoned off money.

Bhattacharya was speaking as Special Commentator at the dialogue on 'Bangladesh's External Borrowings and Debt Servicing Scenario: Are There Reasons to be Concerned?' With CPD Executive Director Dr Fahmida Khatun in the chair, the discussion was held at a city hotel.

He said: "We have been borrowing more loans year on year. But what is the result? Is the foreign direct investment growing? Have we been able to enhance the allocations for human capital formation (education, or in health sector?"

The economist notes that investment in projects with foreign loans is increasing. But, interestingly, FDI is not getting a boost.

Citing the recent data of the Bangladesh Sample Vital Statistics (SVRS) survey, food security survey, labour-force survey by the Bangladesh Bureau of Statistics (BBS), he mentioned a slew of negatives. "You can see that our life expectancy declined, child and maternal mortality increased, inequality widening, 25-percent households in food insecurity, no-education-no-training people increased. So, where is the impact of the huge foreign loan?" he questioned.

"The social and economic safeguards have become loose. The parliamentary standing committees don't function properly, no MPs ask questions to1111 the finance minister in parliament, the cabinet committees on procurement and economic affairs don't discuss any policy issues rather approve the public purchase. Then, what will be the safeguards for the foreign-debt management or loan policy? Who will look after those matters?" he asked in a barrage of questions.

Dr Debapriya thinks the government is not being able to finance a penny to the development projects from the revenue income. "It is taking loan for these works. We are in a regime of deceiving with the foreign loan," he said in a swinging remark.

Another distinguished fellow of CPD, Dr Mustafizur Rahman, presented a keynote, saying that Bangladesh is in a vulnerable position in debt-carrying capacity.

Bangladesh has been categorised as a country with Medium Debt Carrying Capacity by the World Bank and the International Monetary Fund (IMF) as its carrying capacity (CI Score) lies between 2.69 and 3.05. "If the CI score falls below 2.69, it will be a weak country," Prof Mustafiz said.

Bangladesh's debt and repayment obligations are escalating, forcing the government to continually resort to borrowing to repay loans amid insufficient revenue collection, he added.

According to Mr Mustafiz, Bangladesh's public and private debt stock as last fiscal year (FY) 2022-23 stood at US$98.94 billion and in September 2023 it crossed the $100.0-billion mark to $100.34 billion.

The CPD fellow finds Bangladesh's external debt stock rising at a fast pace over the recent years as foreign debt-GDP ratio stood at 21.6.

Between FY2011 and FY2023 total external outstanding Public and Publicly Guaranteed (PPG) debt increased three times, while increase in debt service rose 2.6 times over the corresponding period, he told the meet.

"We cannot fund our development budget through our revenue income rather from the foreign loans. We are also borrowing to repay a large part of our public and publicly guaranteed debt obligations."

Therefore, there is no alternative but to rapidly increase domestic resource mobilization.

Highlighting the debt composition, the CPD fellow showed that the proportion of concessional loans is decreasing, while the share of non-concessional and market-based loans is increasing. Loan terms are also becoming more stringent.

Prof Mustafiz noted with concern the rapid increase in both external borrowings and debt- servicing obligations, especially when compared with the growth of GDP, revenue earnings, exports, remittances, and foreign-exchange reserves.

He said Bangladesh's revenue-GDP ratio is one of the lowest in the world. The debt-revenue ratio reached 200.1 per cent in FY2023 from 148.4 per cent in FY2018.

This, coupled with the debt-carrying capacity and debt-servicing strength, raises concerns, the economist said.

At the end of the day, he said, it is the domestic resource mobilisation that will need to underwrite the debt servicing for both domestic and external borrowings. An increasing portion of domestic resources is being used to repay the principal and interest of domestic and external loans.

Former Bangladesh Bank governor Dr Salehuddin Ahmed told the meet there are some lobbyists pushing to undertake foreign-funded projects in Bangladesh which sometimes are damaging.

"Whether the foreign-funded megaprojects are beneficial to the country should be the first priority," he added.

About the fiscal sector Dr Ahmed said the contractionary monetary policy is affecting the small businessmen, and the massive depreciation of taka is affecting the general people.

"The inflation here is now from the supply side, what will benefit the contractionary monetary policy? He questioned.

Renowned economist Professor Rehman Sobhan said "crony capitalism and corruption" are hampering expected output from the mega-and other projects in Bangladesh.

"The government can go for equity-based investments in addition to its general trends of project aid-funded schemes. For the public-private partnership (PPP) project, don't go for facilitating the private sector in making money and the public sector for bearing the losses only," he said in his word of advice.

Politician Zonayed Saki said the big projects here in Bangladesh are "now means of big corruption".

"When you will show a different type of democracy with developing big infrastructure only and repressing people's voice, then this government system will make the country indebted to the overseas lenders," he added.

Dr Mashiur Rahman, adviser to the PM, said although there is some corruption in Vietnam but they have introduced a good economic culture there which is helping the county to attract FDI.

Differing with the comment on lesser public investment in health and education sectors, he said although the development expenditure is lower, but nobody adds the expenditure from the operating budget which all together will be higher in amount.

"Bangladesh's all departments have their own power and sometimes they may fail to ensure correct judgment, which is creating impediments to the private-sector investment," he said.

"We have to improve our productivity rather than restrict the foreign loan," Dr Rahman said.

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